MBK in talks with Lone Star for partial KEB stake

SeYoung

(Updates with comments from analyst, background)

SEOUL (MarketWatch) -- Asian private equity fund MBK Partners is in discussions with Lone Star Funds to buy around half of the stake owned by the U.S.-based fund in Korea Exchange Bank (004940.SE), instead of all of the U.S. fund's majority holding, at prevailing market prices, a person familiar with the situation said Tuesday.

Whether a deal between Lone Star and MBK Partners materializes may be contingent on what Australia & New Zealand Banking Group Ltd. (ANZ.AU), which is conducting due diligence for a 57.27 stake in KEB, decides to do, the person said, adding another twist to sale process that has dragged on for over half a year.

ANZ, which confirmed its interest in KEB in April, but has yet to decide whether to bid, is conducting due diligence for Lone Star's entire stake in the Korean bank as well as The Export-Import Bank of Korea's 6.25% stake.

The person Tuesday said MBK Partners' offer to buy around a 25% to 26% stake in KEB is close to the market value of the South Korean bank's shares, which is around KRW2.18 trillion to KRW2.27 trillion ($1.94 billion-$2.02 billion), based on a price of KRW13,550 per share at 0245 GMT. MBK initially sought to buy all of Lone Star's KEB stake, but the person said it had been unable to raise enough funds for such a transaction.

Lone Star put its stake in KEB for sale in March, its third attempt to sell since it bought the once-debt-ridden bank in 2003. Its first divestment attempt, when it reached an agreement with South Korea's Kookmin Bank in 2006, fell through amid a South Korean government probe into the circumstances under which KEB was sold to Lone Star. HSBC Holdings PLC (HBC) in 2007 agreed to buy the stake for around US$6 billion, but subsequently backed out because of the turmoil in global financial markets.

This time, the South Korean government's attempts to sell its 57% stake in Woori Finance Holdings Co., the country's largest financial holding firm by assets, has hampered the U.S. fund's efforts to drum up interest in the smaller KEB.

For its part, ANZ has said it would only go ahead with a deal if it satisfies ANZ's strict criteria, including ensuring the deal is accretive to shareholder value within the short to medium term.

A KEB official referred queries about the sale process to Lone Star. Lone Star and ANZ could not be immediately reached for comment.

MBK has been interested in buying KEB, but had been looking for a partner to help it finance the deal when ANZ's interest was disclosed.

"It's probably best to see this as an attempt by Lone Star to produce another potential bidder," HI Investment & Securities analyst Shim Kyu-sun said, adding that Lone Star would be at a disadvantage if there was only one potential buyer.

Buying a majority stake in KEB would give Melbourne-based ANZ a solid platform in South Korea, Asia's fourth-largest economy and an increasingly important trade partner for Australia. ANZ wants to boost its exposure to Asia with the aim of becoming a "super regional lender."

"This opportunity specifically leverages Korea's connectivity with the rest of Asia and KEB's leading position in foreign exchange and in trade finance," ANZ CEO Mike Smith told reporters in August, when discussing the potential acquisiton.

HI Investment's Shim said that South Korean banks continue to generate firm profits, though the sector is unlikely to see high loan growth as the market enters a maturation stage. The market also considers KEB one of the financially sounder banks in the country with relatively modest exposure to the weak domestic property market.

It remains unclear whether Lone Star's latest attempt to exit from KEB, which it bought into in 2003 for $1.3 billion, will succeed. Analysts say that it's unlikely Lone Star will be able to sell the stake for anything close to the HSBC offer, because of the lack of firm bidders as well as the change in the market environment since then.

"But Lone Star has already taken out a lot from KEB through means like dividends, so it's not that bad for them even if the sale price is lower than before," Shim said. "What's important to (Lone Star) is a quick exit."

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.